Motives of Holding inventories

Motives of Holding inventories : Tally Training in Chandigarh

Today we will discuss about motives of holding inventories with Tally Training in Chandigarh

The motives of holding inventories are as follows:

1. Inventories Motives : Every firm has to maintain some level of inventory to meet the day to day requirements of sales, production process, customer demand etc. This motive makes the firm to keep the inventory of finished goods as well as raw materials. The inventory level will provide smoothness to the operations of the firm. A business firm exists for business transactions which require stocks of goods and raw materials.
2. Precautionary Motive: A firm should keep some inventory for unforeseen circumstances also. For Example, the fresh supply of raw material Could not able to reach the factory because of strike by the transporters or due to natural calamities in a particular area. There may be labour problem in the factory and the production process may halt. So, the firm must have inventories of raw materials as well as finished goods for meeting such emergencies.
3. Speculative Motive: The firm may be tempted to keep some inventory in order to capitalize an opportunity to make profit e,g, sufficient level of inventory may help the firm to earn extra profit in case of expected shortage in the market.

Types of Inventory

There are various types of inventory which are as follows :

1. Movement Inventories: Movement Inventories are also called transit or  pipeline inventories. Their existence owes to the fact that transportation time is provided in transferring sustainable amounts of resources. For example : when coal is transported from the coalfields to an industrial town by trains, then the coal, while in the transit, cannot provide any service to the customers for power generation or for burning in furnaces.
2. Buffer inventories : Buffer inventories are held to protect against the uncertainties of demand and supply. An organization basically known about the average demand for different items which is indeed. However, the actual demand may not exactly match the average and could well exceed it.Similarly, the average delivery time ( That is, the time elapsing between placing an order and  In Buffer inventories are having the goods which is in stock that is ready for use, and technically called as the lead time) may be known. But unpredictable event could cause the actual delivery time to be more than the average during the time for which the delivery is delayed. These inventories which are in excess of those necessary just to meet the average demand ( during the average lead time period), held for protecting against the fluctuations in demand and lead-time are known also by the term safety stocks.
3. Anticipation Inventories: Anticipation Inventories are held for the reason that a future demand. For the product is anticipated production of specialized times like crackers well before Diwali, umbrellas and raincoats before rains set in, Fans while summers are approaching, Or we can say pilling up of inventory stocks when a strile is on the anvil are all examples of anticipation inventories.
4. Decoupling inventories : The idea of the decoupling inventories is to decouple, disengage, differents parts of production system. As we observe easily, different machines/ equipment and people normally work at different rates: some slower and some faster. A machine, for example,might be producing half the output

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